US & World Daily Markets Financial Briefing 28-05-2009

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Stocks Turn Lower On Disappointing Housing Data

After seeing some early strength, stocks have shown a notable move to the downside over the course of morning trading on Thursday. The downturn came as disappointing housing data cooled trader optimism that was bolstered earlier by encouraging labor and manufacturing figures.

While the Commerce Department released a report on Thursday showing a modest increase in new home sales in the month of April, the sales growth came amid a notable downward revision to the pace of sales in March.

The report showed that new homes sales edged up 0.3 percent to an annual rate of 352,000 in April from a revised 351,000 in March. Economists had expected sales to rise to 360,000 from the 356,000 originally reported for the previous month.

Earlier, traders reacted positively to a report from the Labor Department that showed that initial jobless claims came in at 623,000 in the week ended May 23rd. This was down 13,000 from a revised mark of 636,000 in the previous week.

At the same time, continuing claims, which measure the number of people receiving ongoing unemployment help, rose once again and set another record high. The statistic climbed 110,000 to 6.788 million.

Separately, a report from the Commerce Department showed that orders for durable goods increased by much more than expected in the month of April, although the stronger than expected growth came after a steep decline in March.

The report said that durable goods orders jumped 1.9 percent in April following a downwardly revised 2.1 percent decrease in March. Economists had expected orders to edge up 0.5 percent compared to the 0.8 percent drop that had been reported for the previous month.

In other news, General Motors (GM) bondholders reportedly accepted an amended debt-for-equity offer that will help the auto giant restructure. The firm also said that a recent U.S. Treasury proposal provides incentives for GM's unsecured bondholders to support GM's restructuring efforts in the event GM decides to pursue a 363 sale as part of its likely bankruptcy proceeding.

The company said that the implementation of this proposal would result in a New GM with a healthy balance sheet, putting the new company on a clear path toward long-term viability and success.

Meanwhile, Time Warner Inc. (TWX) announced that its Board has authorized management to proceed with plans to spin off its AOL Internet business. Following the proposed transaction, AOL would be an independent, publicly traded company.

In recent trading, the major averages have moved well off their worst levels of the day, although they remain stuck in the red. The Dow is currently down 21.90 at 8,278.12, the Nasdaq is down 4.83 at 1,726.25 and the S&P 500 is down 0.93 at 892.13.

Sector News

Most of the major sectors have turned lower over the course of the morning, helping to drag the major averages into negative territory.

Housing stocks are leading the way lower, with the Philadelphia Housing Sector Index falling by 3.2 percent. With the decline, the index has dipped to its lowest intraday level in well over a month.

The retreat comes on the heels of the day’s disappointing housing data, which has renewed concerns about the near-term prospects for the embattled sector.

Electronic storage, healthcare and transportation stocks have also contributed to the pullback by the major averages on the day.

Mitigating some of the day’s losses are gains by resource stocks, with gold stocks posting notable gains and driving the Amex Gold Bugs Index up 3.9 percent. The advance by resource stocks comes amid an increase in most major commodities prices.

Other Markets

Stocks markets across the Asia-Pacific region turned in a mixed performance on Thursday, although the markets in Hong Kong and mainland China were closed. Japan's benchmark Nikkei 225 Index edged up 0.1 percent.

The major European markets are currently turning in a disappointing performance, deepening their losses. The French CAC 40 Index and the German DAX Index are down by 1.5 and 1.7 percent, respectively, while the U.K.'s FTSE 100 Index is down by 1.5 percent.

In the bond markets, treasuries have ceded some of their earlier gains but remain in firmly positive territory. Subsequently, the yield on the benchmark note is at 3.647 percent, a drop of 4.8 basis points on the day.

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Toronto Stocks Look To Rebound As Financials Report Earnings

Canadian stocks will look to recover some of yesterday's notable losses on Thursday morning. Financial stocks will be in focus with some of the big six banks reporting quarterly earnings.

Toronto-Dominion reported net income for the second quarter was C$577 million or C$0.68 per share, compared to C$841 million or C$1.12 per share in the year ago quarter.

National Bank announced second quarter net income of C$261 million or C$1.53 compared to C$229 million or C$1.41 in the second quarter of 2008. CIBC announced a second quarter net loss of C$90 million or C$0.24, compared to a loss of C$1.41 billion or C$3.00 in the year ago quarter.

Energy stocks could move higher as crude oil has gained about a half-percent in electronic trading. As expected, the Organization of Petroleum Exporting Countries announced it has decided to leave production unchanged following a meeting in Vienna.

In other corporate news, telecom equipment maker Nortel Networks Corp. said Wednesday that it will seek a buyer for its majority stake in LG-Nortel, the company's South Korean joint venture with LG Electronics.
 
Transportation supply company Descartes Systems Group reported first quarter net income of US$2.21 million or US$0.04 per share, compared to US$1.05 million or US$0.02 per share in the same quarter of last year.

In economic news, the Globe and Mail reported Canadian governments may spend more than C$13 billion on bailouts of beleaguered automakers General Motors and Chrysler.

Meanwhile, the earnings for the average Canadian employee climbed 2.4% year-over-year in the month of March. Across the border, the U.S. Department of Labor revealed that initial jobless claims came in at 623,000 for the week ended May 23. This was down 13,000 from a revised mark of 636,000 in the previous week.

Meanwhile, a Commerce Department report showed that durable goods orders jumped 1.9 percent in April following a downwardly revised 2.1 percent decrease in March. Economists had expected orders to edge up 0.5 percent compared to the 0.8 percent drop that had been reported for the previous month.

Yesterday, the S&P/TSX Composite Index fell 143.74 points or 1.39% to finish the day at 10,142.16. Tuesday's close was the highest for the index since October 3.

Gold Prices Rise Slightly As Dollar Slides Versus Euro

Gold prices moved slightly higher in early trading on Thursday morning after finishing the previous session flat. The dollar slipped against the euro, adding to gold's hedge attraction.

June-stamped gold climbed to $958.10 per ounce, up $4.80 on the session. Prices reached as high as $961.10 and as low as $944.00.

Gold is down 80 cents from last Friday's close, holding most of last week's rally. Gold gained more than $25 last week.

The dollar fell away from the euro in mid-morning dealing after earlier hitting a weekly-high. The buck remained stable versus the British pound. Normally, gold moves opposite the greenback because of the precious metal's hedge value.
 
The metal's hedge appeal was boosted by crude oil, which added 63 cents to $64.08 per barrel. The Organization of Petroleum Exporting Countries announced it will leave production unchanged following a meeting in Vienna, as expected.

In economic news, the Labor Department reported initial jobless claims were 623,000 for the week ended May 23. This was down 13,000 from a revised mark of 636,000 in the prior week.

At the same time, a Commerce Department report showed that durable goods orders jumped 1.9% in April following a downwardly revised 2.1% decrease in March. Economists had expected orders to edge up 0.5 percent compared to the 0.8% drop that had been reported for the previous month.

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Mixed trading was witnessed among the major markets in the Asia Pacific region on Thursday, although the markets in Hong Kong, China and Taiwan were closed for public holidays. While the Australian, Malaysian and Singaporean markets ended in negative territory, while the markets in Japan, South Korea and Indonesia ended in positive territory

The Nikkei 225 Average opened weaker at 9,353, mirroring the losses on Wall Street. However, automakers helped stage a smart recovery in early trading, while a weaker yen and better than expected Japanese retail sales encouraged exporters. The index moved above the unchanged line in the afternoon session to the day's high of 9,493 before finally closing with a gain of 12.62 points or 0.13% at 9,451. The broader Topix Index of all first section issues ended at 896, up 2.74 points, or 0.3%.

On the economic front, the Ministry of Economy, Trade and Industry revealed that retail sales declined 2.9% year-over-year during April. Analysts expected sales to drop 3.3% during the month. The retail sales for March were revised to a negative 3.8% from the previously announced 3.9% decline.

General chemical firm Asahi Kasei Corp. advanced 2.43% after JP Morgan Securities raised the rating for the company to "buy" and also revised the stock price target upwards, citing better prospects for the company in non-petrochemical business segments and relatively less reliance on petrochemicals.

Among tech exporters Canon Inc. edged up 0.63% and Sanyo Electric surged 5.24%. In the auto space, Toyota Motor advanced 2.70%, Honda Motor added 2.39% and Isuzu Motors added 2.58%.

Financial stocks ended mixed. Mitsuibishi UFJ added 0.32% and Resona Holdings rose 0.77%. However, Sumitomo Mitsui lost 1.13% and Mizuho Financial slipped 0.53%.

After opening unchanged from the previous close at 3,795, Australia’s All Ordinaries Index slipped into negative territory. Lower copper and oil prices dragged the index down further to a low of 3,737 by mid-day. Financial stocks also showed weakness on concerns that rising yields might curtail attempts to reduce interest rates and pour cold water on recovery hopes.

The index ended down by 41.40 points, or 1.09%, at 3,754. The benchmark S&P/ASX 200 Index followed a similar trend and ended down at 3756, down 45.4 points or 1.2%.

Resource stocks led the decline after copper price slipped in the international market for the first time in five sessions. BHP Billiton lost 1.82%, Orica slipped 1.63%, Oz Minerals shed 4.63% and Rio Tinto edged down 0.56%.

Mixed trading was witnessed among oil stocks. While Woodside Petroleum added 0.87%, Santos slipped 0.55% and Oil Search shed 1.11%. However, gold stocks strengthened on higher bullion prices. Lihir Gold advanced 1.58%, Newcrest Mining added 0.37% and Sino Gold advanced 0.64%.

Among financials, ANZ Banking, which was on a trading halt on Wednesday ahead of its capital raising plan, led the decline, dropping 1.22%. Commonwealth Bank of Australia was down 3.36% Macquarie Group lost 2.05%, and Westpac Banking shed 191%. National Australia Bank edged down 0.55%.

In South Korea, the benchmark KOSPI Index ended sharply higher as concerns about the threat from North Korea petered out and bargain hunting by institutional investors helped stocks across the board.

Heavyweight Samsung Electronics advanced 4.49% following news that the company renewed its licensing contract with memory chip-maker SanDisk of the U.S. LG Electronics gained 5.75% after forecasting better earnings results for the second quarter. Automakers Hyundai Motor, Ssangyong Motor and Kia Motors registered smart gains on expectation of a bank-ruptcy filing by General Motors.

Rising sea freight rates and increased demand helped shipping stocks post impressive gains during the day. Hanjin Shipping gained 7.26% and STX Pan Ocean soared 11.02%.

The Indian market continued its positive momentum despite mixed global cues. While short covering on account of derivatives contracts expiry pushed stocks considerably higher, the benchmark indexes pared some of their gains in late trading in reaction to the negative opening of the European markets. The BSE Sensex closed at 14,296, up 186.37 points or 1.32%, while the Nifty gained 61.05 points, or 1.42% to close at 4,337.

Among the other major markets in the region, Indonesia's Jakarta Composite Index edged up 10.03 points or 0.53% to close at 1,903, while the Strait Times Index in Singapore shed 13.11 points, or 0.57% to close at 2,293.

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The major European markets are trading lower on Thursday, with the French CAC 40 Index and the German DAX Index moving down 1.03% and 1.10%, respectively. The U.K.’s FTSE 100 Index is declining 1.19%.

Eurozone economic sentiment improved for the second straight month in May, a survey from the European Commission showed Thursday. The index rose to 69.3 in May from 67.2 in April. Economists expected a reading of 69. The increase in the confidence index was driven by a clear improvement in sentiment in the retail sector, which rose markedly to minus 15 from minus 20 in April. Confidence in industrial and services rose by 1 point each to minus 34 and minus 23, respectively. Meanwhile, consumer confidence remained unchanged at minus 31 in May.

A separate survey from the European Commission revealed that business confidence rose slightly to minus 3.17 in May from minus 3.26 last month. Economists were expecting a reading of minus 3.1.

Meanwhile, the German Federal Statistical Office reported that Germany’s jobless rate measured based on ILO standards rose to 7.7% in April from 7.4% in the same period last year. The unemployment rate came in line with economists’ expectation.

U.S. Economic Reports

The Commerce Department’s durable goods orders report showed that orders for goods designed to last for more than 3 years rose 1.9% in April to $161.5 billion following a 2.1% decline in March. Economists had looked forward to 0.5% growth in the durable goods orders.

Excluding transportation orders, new orders rose 0.8%. Transportation equipment orders jumped 5.4% to $40.5 billion. Shipments of durable goods were down 0.2% and unfilled orders declined 1.2%, while inventories also fell, dropping 0.8% in the month. The key non-defense capital goods orders, excluding aircraft, which is a measure of capital spending fell 1.5%

The U.S. Department of Labor revealed that initial jobless claims came in at 623,000 for the week ended May 23. This was down 13,000 from a revised mark of 636,000 in the previous week.

The 4-week moving average of initial claims, a statistic that flattens out week-to-week fluctuations in the data, dipped to 626,750 from the revised mark of 629,750 seen in the previous week.

Continuing claims, which measures the number of people receiving ongoing unemployment help, rose once again and set another record high. The statistic climbed 110,000 to 6.788 million.

The Commerce Department is also due to release its new home sales report for April at 10 AM ET. The consensus estimate calls for an increase in new homes sales to 360,000.

Crude oil inventories fell by 2.1 million barrels in the week ended May 15th to 368.5 million barrels. Even with the decline, stockpiles remained above the average range for this time of the year.

Gasoline inventories declined by 4.3 million barrels and were below the lower limit of the average range. On the other hand, distillate inventories rose by 1.8 million barrels and were above the upper limit of the average range. Refinery capacity utilization averaged 83.4% over the four weeks ended May 15th, lower than last week's 83.8%.

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Blue Coat System (BCSI) could come under selling pressure after it said it has delayed its fourth quarter earnings announcement, originally due May 27th,. The company attributed the delay to the additional procedures it is conducting as a result of a recently identified irregularity with a single shipment in its European operations. At the same time, the company said fourth quarter revenue and non-GAAP earnings per share would be within the ranges it previously announced.

Jo-Ann Stores (JAS) is likely to see some strength after it reported that its first quarter net income rose to 33 cents per share from 12 cents per share last year. On an adjusted basis, excluding a gain of 3 cents per share, the company’s earnings were 30 cents per share. Net sales rose 3.1% to $460 million, in-line with the consensus estimate. For the year, the company expects earnings of 70-85 cents per share and a 2%-4% decline in same store sales. Analysts estimate earnings of 90 cents per share for the year.

Tivo (TIVO) receded in Wednesday’s after hours session after it reported a loss of 4 cents per share for its first quarter compared to a profit of 4 cents per share last year. Revenues declined to $54.9 million from $60.88 million last year. The consensus estimates had called for a loss of 5 cents per share on revenues of $48.60 million.

DSW (DSW) is likely to recede sharply after it reported that its first quarter net income declined to 16 cents per share from 23 cents per share last year even as sales rose to $385.8 million from $366.3 million last year. Analysts, on average, estimated earnings of 16 cents per share on revenues of $382.75 million. For the full year, the company expects earnings of 30-35 cents per share and a mid-single digit decline in comparable store sales, while analysts estimate earnings of 46 cents per share for the year.

Coldwater Creek (CWTR) could see some strength after it reported that its first quarter net loss narrowed to 8 cents per share from 10 cents per share last year. Net sales fell to $228.4 million from $271.1 million in the year-ago period. Analysts estimated a loss of 14 cents per share on revenues of $234.95 million. The company expects a loss in its second quarter, although narrower than in the first quarter, while analysts estimate a loss of 1 cent per share.

Diamond Foods (DMND) could also be in focus after it reported that its third quarter earnings rose to 16 cents per share from 7 cents per share in the year-ago period. Net sales climbed 11% to $111.01 million. The consensus estimates had called for earnings of 14 cents per share on sales of $104.3 million. The company raised its full year earnings per share guidance to $1.31-$1.36 from its prior estimate of $1.27-$1.34, while it lifted its net sales guidance to $550 million to $565 million. The Street estimates earnings of $1.35 per share on revenues of $559.31 million for the year. Time Warner (TWX) could react to reports that it is close to announcing a deal to spin off its AOL Internet business.

Earnings

Costco Wholesale (COST) said its third quarter net sales declined 5% to $15.48 billion. The company’s net income fell to 48 cents per share from 67 cents per share last year. The company noted that its quarterly results were impacted by a pre-tax charge related to a litigation settlement, higher employee benefit costs, a weak sales trend and a stronger dollar. Analysts estimated earnings of 53 cents per share on revenues of $16.16 billion.

Big Lots (BIG) reported first quarter earnings of 44 cents per share, up from 42 cents per share in the year-ago period. Income from continuing operations rose to 44 cents per share from 42 cents per share in the year-ago period. Net sales fell 0.9% to $1.14 billion. Analysts, on average, estimated earnings of 40 cents per share on revenues of $1.13 billion. For the second quarter, the company expects income from continuing operations of 26-32 cents per share. The company increased its 2009 full year earning from continuing operations guidance to $1.85-$1.95 per share. Analysts estimate earnings of 30 cents per share for the second quarter and $1.88 per share for the full year.

Heinz’s (HNZ) second quarter net income declined to 55 cents per share from 61 cents per share last year. Sales eased to $2.54 billion from $2.69 billion in the year-ago period. Analysts estimated earnings of 55 cents per share on revenues of $2.56 billion. For the full year, the company expects sales growth of 4%-6% and earnings per share of $2.60-$2.70.

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